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How To Short Penny Stocks: Playing It Safe By Covering Short Positions Early

Posted by timothysykes on Wed 2nd of Apr, 2008 11:24:27 AM
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This is a profession where we know 90% of the players lose—you want to do everything you can to not be one of them. What’s worked for me is Short Selling weakening stocks that have a bunch of overhead resistance and if the price action doesn’t pan out EXACTLY like I want, cutting my losses quickly. I’ve proven both these points with my latest trades on COT and ASTI.

As I posted the other day, I shorted COT at $3.48, encouraged by a late afternoon crack of sideways price action, making em think it’d seen its top. Unfortunately, overnight good news caused a 15 cent/share gap higher—not much, but definitely not to my liking. Thought about holding, but when I see fading volume and 20k and 30k buy orders—whether they’re real or not—there’s the potential for a big squeeze, so I covered my 1,000 shares at $3.60, a $140-ish loss. Not bad, just playin’ it safe.

Minutes later, the stock was looking to go negative and I tried reshorting 2,000 at $3.55—order REJECTED. Too much trading for this under $25k trader, pesky SEC-Reign-Of-Terror-Rule (Pattern Day Trading Rule (PDTR) should really be ROTR) stopped me…stock drops nicely down to $3.25—annoying $500 gain missed, but this is why most traders play FX and use tons of leverage (SEC you realize you’re punishing the good guys and encouraging the bad ones, right? AKA any economic disaster is squarely on your shoulders). Gotta learn I can’t enter and exit as I please, like being on probation for a crime I didn’t commit—never gonna get more comfortable risking losses.

cot How To Short Penny Stocks: Playing It Safe By Covering Short Positions Early

Focused on writing most of the day, but then recent runner ASTI showed signs of afternoon weakness, cracking the day low at $16.20. Sure, plenty of support all through $15.6-$16, but this one was up waaaay too many days in a row, this was its first day, panic was possible—and panic sometimes cuts through support levels like warm butter. Shorted 300 shares at $16.13, not a great entry, but not bad, waited, waited, waited, lots of buyers just over $16 wouldn’t get taken out…until a 20k sell order showed up on the as at $16.05…that scared buyers and the tank was on, right before the market close, coulda woulda shoulda gotten ugly.

But it was stopped cold around $15.90, a pathetic 10 cent panic—screw this, waaaaay too many buyers to risk holding overnight, covered on the bounce at $16.10, made nada after commissions. Sure it finished red on the day and under $16.20 intraday support, but it’d also gapped higher the previous few days and was already $2 off its highs, wasn’t gonna risk it.

asti How To Short Penny Stocks: Playing It Safe By Covering Short Positions Early

Today COT was strong from the get go and ASTI dipped 50 cents before spiking $1.50-ish. Both prove themselves to be more bullish than bearish justifying my decisions to get out…$140 loss is perfectly acceptable, no positions, now I go back to stalking my next prey…

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  • MXFD is bull - same people as RVNG and KYUS - Just a very small float controlled by very few people. It may get halted before it stops moving up... who knows though maybe it'all work, not sure what could roll in to support 500M-1B market cap but hey worth a shot.

    Where are you able to short it?
  • timsykes
    read this post and u'll see why no I don't think ASTI is a great short here...
  • Hey Tim, take a look at MXFD. The bugger looks to me like it is about to crack. Couple weeks of almost no volume, and the last couple days it has started a slide.

    I've been short it for awhile and am sitting on huge losses, but I am patient. Because of the low volume and the hard borrow I'm sure it won't meet your trading criteria, but it will still be fun to watch it fall.
  • Interactive Brokers. It took months of watching, and then one magic day a large chunk of shares were available.
  • leo00o83 (Amir)
    ASTI is trading alongside oil speculation. big money is in charge of this rocket.


    Got in CDS at 7.95 today, meanwhile looking good, but we'll see. Tim if this thing breaks down 7$ would you short?
  • timsykes
    yah MXFD is surely on my watchlist, very scary though, how low did u short?
  • Its so very controlled and if you watch it the only one that buys is ARCA, TRLN is probably a short but most of the time its ARCA vs ARCA
  • timsykes
    no shares at thinkorswim...cmon goode tell us what u're in at, u can't knock me--mr. full transparency--and then hide your details, for shame!
  • Marv
    Tim - CVP took a hit and is trading sideways todays. Your thoughts on a breakout?
  • Kris
    Have any of you guys seen the RUDY NUTRITION drink spam commercial on CNBC? Ticker is RUNU They use some fake website url and say the ticker symbol in the commercial talk about taking spam to a whole new level lol.
  • Tony Ellis
    ASTI...lol
  • What do you think of PAY. The company has confirmed financial errors and shares tank.
  • Nate
    Are you cheating on covestor or what's going on there? 150% return?
  • CVP Just lit up! Trying to make an afternoon move towards $5.00, Big tanker earlier in the day. Had a good size position at 4.20 but unfortunately sold way too soon!
  • Mike
    Michael Goode, do you know if interactive brokers still has shares available to borrow? I was thinking of opening an account with them.
  • timsykes
    c'mon Goode put up or shut up, you come on a fully transparent website, you try to get others to short a stock you're getting creamed on and you don't have the balls to say what you're entry price is--classic classic classic financial BS. thanks for being the latest reminder at why I'm gonna dominate this industry simply by being open and honest
  • Mike
    That's a weird stock. It's a microcrapper in terms of float but still has market cap of half a billion. aka Susceptibility to short squeezes! aka Don't short until it's a super nova.
  • Sorry for the delayed response. I still have a day job and can't spend all my time here!

    @Mike - no shares have been available for over a month @ IB.

    TIm - I'm short 8,100 at an average price of $13.25. And yeah, that means I've been sitting on a loss of up to $50k (currently $36k). I shorted those shares between 2/12/08 and 2/19/08. Interestingly, because of other good calls, I was up 19.48% in February and 16.51% in March despite the huge losses on this position.

    As long as I can hold on for a long time (and I can), there is little risk from spikes in the stock. The only risk if the stock goes Reg SHO and IB forces me to buy to cover at a huge loss. That has happened to me in the past, last January with RMDX. Luckily I was able to short that again just a couple weeks before it tanked.
  • Mike--the one problem with using Tim's trading methods on this type of stock is there are rarely shares available to short, and almost never are there shares when you want them. The only way to make money shorting it is to short when shares are available and hold on for dear life. Same thing happened in January with CCYG, and has happened numerous other times with junk OTC stocks.
  • Tim--you want to apologize? Like I said, I was busy. Anyway, I thought y'all might be interested in it. I'm not trying to get anyone to short it. If any more shares become available, I want them.

    BTW, I am now on Covestor (unfortunately they don't auto-import from IB): http://www.covestor.com/mbr/goodevalue.com

    My previous trades are all on Icarra (ignore my return, it is not correct, which is why I moved to Covestor):
    http://www.icarra.com/viewPortfolio.php?id=1912
  • timsykes
    Good answers, but no apologies, next time get your priorities straight!

    As for saying there's rarely shares to borrow--look at my trades man--I'm using a freaken basic online discount broker and I get shares nearly every time. I could use a specialty broker that requires minimums of $250k and get shares EVERY time, but that'd be tough for the mainstream audience now wouldn't it
  • Tim--for MXFD and similar thin, manipulated OTC stocks, the borrows are hard or nearly impossible. There's a big difference between that and stuff like COIN and ASTI.
  • ken
    Just want to share these two from my short filter. NXTM and HYTM are junky companies and the chart is in a strong down trend. There was no recent news to account for the recent big up moves. These types have a high probability of resuming their major trend which is down.
  • Bob
    It seems to me that RUDY NUTRITION (RUNU) is going to take off. It is worth investing in!
  • JoeJoe
    What broker do you guys use to short pennystocks? The only Online brokerage firm I found to have sufficient inventory is Interactive Brokers? Does anyone use a different firm.

    Please Help.

    Thanks
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Who Is Timothy Sykes And Why Should I Care?

See Tim's full bio HERE. Tim turned a few thousand dollars into a few million by taking small gains time after time on hundreds of volatile penny stocks, discovering that his trading strategy, while consistently successful, works best for those with smaller accounts.

Determined to teach others this PennyStocking trading strategy (learn more HERE), he went back to his original $12,415 roots (already $58,000+ even though the stock market has crashed) to show everyone how to turn thousands into millions, even while having a life (somewhat) and making plenty of mistakes. Currently he is the #1 ranked trader out of 25,000+ on Covestor)

How Can I Consistently Make Money In The Stock Market?

Hard work, Determination and Know How.

Hard work to learn how the greatly misunderstood niche of penny stocks provides opportunities every now and then on which you should pounce.

Determination to seek those probable profits out and know how in order to actually profit from them.

Long story short, wait for stocks that are extremely volatile - for whatever reason - and then aim to take small profits (between 10 and 50% within a few hours, days or weeks) here and there, either from betting on higher or lower prices (yes, you can make $ betting on lower prices, it's called Shortstocking (learn more HERE).

Why Penny Stocks?

As Tim explains in several ALL-NEW instructional DVDs (see them HERE) and in over 2000+ blog posts, penny stocks are the most hyped and corrupt niche in the entire investment world. These two qualities make them the easiest to profit from (legally) because the vast majority of people who play penny stocks are suckers and all-around ignorant people. If you have any intelligence whatsoever, you have a clear advantage and it's like playing basketball against mental midgets.

Where Do You Find Stocks To Trade?

This is the #1 FAQ (see more HERE) and it is answered in THIS instructional DVD.

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TIM Trades

View All
Date Stock Buy Sell Net
Nov 6 QXM $4.31 $4.80 $1936
Nov 4 COT $8.66 $8.88 $642
Nov 4 QXM $4.61 $4.89 $822
Oct 30 DDRX $25.70 $26.53 $812
Oct 29 CTDC $4.00 $4.42 $781
Oct 26 AWSL $3.24 $4.10 $2516
Oct 23 RODM $5.27 $5.23 $301
Oct 22 AMLM $2.69 $2.97 $820
Oct 22 USEG $6.12 $6.09 $85
Oct 20 CBOU $8.93 $9.06 $243
Oct 16 VRMLQ $16.79 $18.65 $2773
Oct 13 YONG $11.05 $11.66 $1202
Oct 13 NPHC $0.59 $0.71 $583
Oct 12 IMGG $0.60 $0.70 $682
Oct 9 ZAGG $5.50 $6.10 $2380
Oct 7 GVBP $0.03 $0.27 $702
Oct 1 NPHC $0.70 $0.85 $1482

Total: $92,304 (644%)